Europe's failing carbon emissions trading system

Europe's carbon trading scheme is making big windfall profits for industry but not reducing carbon emissions a new report says

Europe's flagship carbon trading scheme is failing to reduce carbon emissions and is unlikely to make much, if any contribution, before 2012, a campaign group has claimed.

Only yesterday, the UK Government reiterated its commitment to the EU Emissions Trading Scheme (ETS) in achieving the pledged cut in carbon dioxide emissions of 34 per cent below 1990 levels by 2020.

But according to the campaign group Sandbag, a surplus of permits has enabled companies to buy carbon credits cheaply, avoid making carbon reduction changes to their businesses and in some cases, even make money out of the scheme.

Flawed system

When it was originally set up, industry lobbied the EU hard to avoid being faced with a tough carbon trading scheme. To appease them the EU allowed companies to buy some carbon offset credits from abroad.

But this over-allocation means that over the second phase of the ETS between 2008-2012, industrial sectors like metals, cement and glass manufacturers will have 400 million surplus permits. This will enable them not only to continue 'business as usual' but also to sell their 'free hot air' on to power companies, which don't have as many permits.

‘Weak targets and the effect of the recession have set the EU ETS on the rocks,' said Sandbag founder Bryony Worthington. 'With too many rights to pollute in circulation the scheme is in danger of being rendered irrelevant.'

'If this was the oil sector, producers would just shut down the supply to increase the price,' explained Sandbag spokeswoman Anna Pearson.

Tougher on industry

As it stands there is little the EU can do to change the system for another four years, as all the permits have already been issued. In effect, the supply has been fixed.

Sandbag wants the EU to raise the ambition level from a 21 per cent to a 30 per cent emissions reduction for phase three between 2012-2020.

'What we have seen is that rather than costing industry money, the ETS has ended up making money for them. So at the very least we hope that next time the EU can dispel the argument from industry that it will be terrible for them and will cost them money,' said Anna Pearson.

Tim Yeo, Chair of UK's Environmental Audit Committee said although he supported emissions trading in practice the EU ETS had not succeeded in driving investment in low carbon technology. 'Concern also remains about the extent to which British companies can purchase credits overseas instead of cutting emissions at home.'

UK Energy and Climate secretary Ed Miliband admitted the EU needed a 'robust' emissions trading system. 'As part of a global climate deal we want Europe to up its targets and that will mean a greater contribution from the EU ETS,' he said.